Purpose: To help you understand the importance of cash flows in the operation of a small business.
Question:
A couple days later, you access your account online at the bank to figure out how much of a bonus check you can afford to write yourself. After depositing the $30,000 from your client, you expect to have a balance of at least $40,000, and since you always like to keep a balance of at least $1 0,000 in your account as a buffer, you figure you can easily write a bonus check for $25,000 for your down payment. After reviewing your account, you’re really concerned when you see that your bank balance is only $9,500! What happened? You scroll down through the screen for an explanation and you see the following:
■ NSF check – Burns & Associates, Inc. – $30,000.00
■ Return check charge $200.00
■ Monthly service charge $300.00
Requirements
1. What happened? Explain why your bank balance is $30,500 lower than you had anticipated. When you prepare your bank reconciliation, what journal entries will you have to make as a result of these three items from your bank?
2. Assume you ultimately end up having to write off the amount owed by Burns & Associates, Inc. What would the journal entry be for that transaction, assuming you use the allowance method to account for bad debts?
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Question Posted: